Franchise Agreement Renewal in South Korea: Terms, Grounds for Refusal and Extra Costs to Check Before You Start

When choosing a franchise brand to join in South Korea, compare not only the opening requirements but also the terms that apply when the agreement expires. If renewal proves difficult or unexpected costs arise just as your business becomes established, your investment recovery plan could be disrupted. This article focuses on helping prospective franchisees review renewal clauses and assess the scope for long-term operation before signing their first agreement.

1. Distinguish the contract term from the right to request renewal

Franchising in South Korea is governed by the Fair Transactions in Franchise Business Act, commonly referred to as the Franchise Business Act. Article 13 sets out a franchisee’s right to request renewal. If a franchisee requests renewal between 180 and 90 days before the agreement expires, the franchisor cannot refuse without justifiable grounds.

However, this right can only be exercised within a total franchise agreement period of no more than 10 years, including the initial term. This does not mean you are guaranteed a 10-year contract from the outset. You must check the initial term and the length of each renewal separately. Nor does it mean you must close after 10 years. Renewal beyond that point requires a separate assessment of the contract, the parties’ agreement and applicable legal principles.

Find the initial start date, expiry date and renewal term in the agreement and record them on a single sheet. If the signing date differs from the actual opening date, check which date starts the contractual clock. Another important question is whether time lost to construction or licensing delays counts towards the contract term.

It is safer not to base a lengthy investment recovery timetable solely on the existence of statutory renewal rights. Separate the amount you could recover within the initial term from the amount you could recover only if renewal goes ahead. This makes it easier to compare the long-term operating risks of different brands.

2. Compare the renewal terms in the disclosure document and agreement

The disclosure document required under the Franchise Business Act includes information on cancellation, termination and renewal. A registered disclosure document is a starting point, not a guarantee that an individual outlet’s agreement will be renewed. Check its registration status on the Korea Fair Trade Commission’s franchise disclosure information system, then compare the registration number and recorded amendments with the documents supplied by the franchisor.

As a general rule, the franchisor must not sign the agreement or collect franchise fees until 14 days have passed since it provided the registered disclosure document. This period can be reduced to seven days if you receive advice on the disclosure document from a lawyer or a certified franchise transaction adviser. Reviewing renewal terms is another pre-contract task to complete during this consideration period.

Find and compare the following points in the disclosure document, draft agreement and accompanying documents.

• Term: Are the initial contract term and each renewal term clearly specified?
• Procedure: Is it clear who receives renewal requests, how to submit them and which documents are required?
• Assessment: Are the assessment criteria and opportunities to remedy shortcomings set out in writing?
• Costs: Can you identify the renewal fee and the conditions for changes to the security deposit?
• Changes: When will you be told about any new contractual terms that will apply on renewal?

If one document says there is no renewal fee but another says it will be negotiated separately, resolve the discrepancy before signing. Use the representative’s explanations to develop your questions, but ultimately obtain written answers from an authorised franchisor representative and ensure the contract wording is clear.

3. Turn grounds for refusing renewal into practical operating standards

The right to request renewal is not an unconditional right to keep trading. The law specifies certain grounds for refusal, including failure to meet payment obligations such as franchise fees, or refusal to accept contractual terms or operating policies ordinarily applied to other franchisees. Where a refusal concerns failure to follow important operating policies, the specific legal requirements must also be examined.

If the agreement states that ‘renewal will be determined by the franchisor’s assessment’, ask for the assessment criteria first. Check how much discretion the assessor has, whether you will be notified of the results and whether you can challenge factual findings. A ground for refusal is not necessarily legally justified simply because it appears in the agreement.

For example, if hygiene or service standards form part of the renewal assessment, ask about inspection methods, record retention and the time allowed to make improvements. If outstanding payments are an issue, establish which charges are covered and whom to contact to dispute accounting errors. Standards must be practical for an operator to meet before they can meaningfully inform a long-term plan.

If the franchisor refuses a renewal request, it must give written notice stating its reasons within 15 days of receiving the request. This rule also highlights why it is important to retain evidence of the date your request reached the franchisor. If you receive a refusal notice, keep the reasons and supporting material, and ask a qualified adviser to assess whether the grounds meet the statutory requirements.

4. Calculate renewal costs alongside the lease term

Even if there is no renewal fee, renewing the agreement may still cost money. The franchisor may also require an increased security deposit, replacement equipment, new signage or premises improvements. Distinguish which items are compulsory and which are optional, when each might arise and who makes the decision.

Ask the franchisor for a written breakdown of expected renewal costs and how they are calculated. If amounts cannot be fixed in advance, establish at least the calculation criteria, notice period and consultation procedure. Wording such as ‘in accordance with the franchisor’s standards at the time’ is not enough to support a reliable long-term financial plan.

Article 12-2 of the Franchise Business Act prohibits franchisors from compelling premises improvements without justifiable grounds and requires them to contribute to costs in certain circumstances. However, the same cost-sharing rules do not apply to every voluntary refurbishment or every expense. If building work is required as a condition of renewal, examine the reasons, scope, quotation and any contribution from the franchisor separately.

Remember that the franchise agreement and the premises lease are separate contracts. Renewing the franchise agreement does not guarantee that you can continue renting the same site. Leases are subject to separate rules, including the Commercial Building Lease Protection Act. Put the two expiry dates side by side and work through both scenarios: the lease ending first and the franchise agreement ending first.

Your comparison should include not only renewal-related expenditure but also the financial impact of closure during building work and outstanding loan repayments. If you intend to borrow to cover additional costs, check that the repayment period aligns with the operating period secured by renewal.

5. Create a renewal management plan before signing

Preparing a renewal timetable when you sign the agreement will make it easier to manage the process even if your contact at the franchisor changes several years later. Record the first and last dates of the statutory request window, where to submit the request and how to update your address for notices. Rather than sending it in a rush on the final day, allow time to confirm receipt.

Check the contract’s notice requirements, then use a method that provides evidence of both what you sent and when it arrived. In South Korea, this may include content-certified post, known as naeyong-jeungmyeong, together with proof of delivery. If using email, check that you are sending it to the designated address and retain the receipt confirmation and the franchisor’s reply. Do not assume that silence means everything will be resolved automatically; check the renewal provisions in both the law and the contract.

Keep the agreement, attached assessment criteria, cost information and the franchisor’s written answers in the same folder. If a disagreement over renewal arises, seek a review from a certified franchise transaction adviser or lawyer. You can also consider franchise dispute mediation through organisations such as the Korea Fair Trade Mediation Agency.

Action summary: Before signing, summarise the contract term, grounds for refusing renewal, additional costs and lease expiry date on a single sheet. Where explanations are unclear, obtain written confirmation rather than relying on verbal promises before deciding to join the franchise network.